Rates continue to go up without any sign of backing down. This prompts many homeowners to pursue their refinancing plans. Today, various refi programs are available to different types of borrowers but few can still beat the advantage of refinancing via FHA-backed programs.
Given that you are carrying a loan with an interest rate higher than 4.5 percent, refinancing via the FHA is one of your best options. Currently, the FHA offers refi programs for borrowers with and without an existing FHA loan. Let us get to know these loan options in this brief primer.
FHA Streamline Refinance
Under the streamline refi program, you can reduce the interest rate on your current mortgage without an appraisal. It requires less strict documentation and underwriting resulting into faster loan processing, hence the term “streamline,” but does not mean that there are no costs involved at closing.
Some lenders may offer the program under a “no-cost” banner, but there are no such things as free lunches. The lender will place the fees in some other form such as a higher interest rate and they pay the cost of closing for you instead. You cannot wrap the costs of closing into the new loan so your options are either to a) pay the closing costs out-of-pocket, or b) choose the higher interest rate option.
What are the basic qualifications for a streamline refinance?
- To be able to access the streamline refi program under the FHA:
- You must have an existing FHA home loan
- You must be current on your mortgage payments
- The resulting refinanced mortgage set up must be beneficial to the borrower
- Cash exceeding $500 may not be taken out of FHA refinanced mortgage under the streamline program
FHA Cash-Out Refinance
If you are among the homeowners who have benefited from the current rise in home prices, refinancing to take out cash from your gained equity is a viable option, especially when you need money to fund an immediate expense.
The proceeds of a cash-out refinance, like a personal loan, can be used for whatever purpose you see fit. The process goes similarly as your conventional mortgage. To be able to access this program, you need to pass the standard qualifications set by the FHA including DTI ratios, LTV ratios, credit score, and income requirements, among others.
Refinancing is a sensitive decision to make. Make sure restarting your mortgage clock will result in an advantage on your end. Speak with a professional today to clarify your most specific questions about FHA refinancing.